S&P to Publish Annual ‘Global Reinsurance Highlights’ Report

September 10, 2014

Standard & Poor’s Ratings Services will publish its annual “Global Reinsurance Highlights” publication to coincide with the 2014 Reinsurance Rendezvous in September. It will provide a detailed perspective on the market, focusing on the competitive pressures that will impede reinsurers’ ability to generate strong returns, and challenges for the sector to reinforce its relevance to existing and future clients as the global economy continues to evolve.

Findings in the report include the following:
• Lower demand has been leading to greater competition in reinsurance markets, resulting in softer pricing. S&P believes more than half the global reinsurers it rates are more susceptible to these trends, despite currently strong balance sheets.
• Short-term, opportunistic strategies should not be relied upon for long-term success.
• The industry is under threat over the long term; in order to reinforce relevance reinsurers will have to adapt to changing conditions by expanding into new markets, developing new products, and supporting global growth.
• Those reinsurers that don’t adapt to these changing conditions are at greater risk of weakening credit quality.

An article “Global Reinsurers: Innovation And Adaptation Are Key To Relevance,” published by S&P on September 10, provides a taste of what is available in the report, offering a view of the role reinsurers could continue to play in the global economy.

Reinsurers must find a way to prove their worth to new clients and reinvent their business models to remain relevant in the current climate of rapidly changing market dynamics, according to the S&P article.

As reinsurance capacity outstrips demand, competition in the global reinsurance market is intensifying. Premium rates declined materially at the major renewal dates (January, April, June, and July) in 2014. As reinsurers look to deploy excess capacity, S&P observes that competition is spilling over from the catastrophe lines of business, and is now weakening pricing in most lines around the globe.

The strength of reinsurers’ balance sheets has enabled most of them to withstand the pricing pressure and competition to date. Absent this, S&P said it would likely have already taken rating actions on some of the reinsurers most exposed to these pressures. The agency estimates that over half of the global reinsurers it rates are more susceptible to the current competitive and earnings pressures. And even those that are well-positioned to navigate softening prices now are likely to find it harder to handle the pressure that will face the industry over the longer term.

Nonetheless, reinsurers have a continuing role to play in the global economy, and they need to emphasize this to current and future clients. In providing solutions for long-term issues, reinsurers can also establish a foothold in and help unlock insurance markets, thus solidifying future competitive positions, S&P continued.

Source: Standard & Poor’s Ratings Services

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